Mountain House (CA) – It appears that AMD’s ATI Radeon 4800 GPU has turned out to be a much better chip than initially expected and AMD’s aggressive pricing puts enough pressure on Nvidia to prompt the company to react. If you are planning on purchasing a GTX 260 or 280 card, you may want to delay until next Monday. Price cuts are on the way.

Over the past several days we have spent some time with several Nvidia’s partners in the Silicon Valley and in Taiwan, which made it obvious that there are tensions between GPU manufacturers and add-in board companies. A raging price is put five companies on the verge of bankruptcy. We cannot disclose who almost kicked the bucket, but we were told that three vendors are still walking on very thin ice.

With the debut of GeForce GTX 200 series, made some adjustments protecting its partners with greater margins, but the ATI Radeon 4800 series is changing that scenario again. AMD has received praise from the press for its ATI Radeon 4800 series, causing Nvidia partners to demand price adjustments. We were told that Nvidia finally stepped down from its pedestal and agreed to offer limited price protection for some products as well as price cuts.

We contacted Nvidia to get more details on this information and were provided with the following statement by Bryan Del Rizzo and Ken Brown, spokespeople for Nvidia:

"We’re working with our partners on adjusting the prices for the GTX 280 and 260. The changes are being implemented over the next few days and will take effect sometime next week. Please obtain final retail pricing from the partners, because they set them for their products."

The third sentence has to be taken with a grain of salt, a most partners complained to us about Nvidia’s Unilateral Minimum Advertised Price Policy, short UMAP, and the way it affects them. For the consumer, however, we have yet another example how well competition works. The race between the Radeon 4800 series and GTX 200 will ultimately drag prices down.

According to our sources, Nvidia cut the price of the GTX 280 by $90 and $30 for the GTX 260. Of course, that is a price cut Nvidia is handing down to its partners and does not reflect retail prices.

After Nvidia’s adjustment, we should see Monday prices going down to $359.99 for GTX 260 cards and to $559.99 for GTX 280 cards. Please note that we are not including the possibility for additional rebates that may be offered. For example, if you purchase PNY's GTX 280 from Newegg.com, you currently pay. After price cut, this might dip down to $479-499, lowering the price below $500 mark.

It appears that we might end up with permanent price brackets at $199, $299, $399 and $499. This would greatly simplify the search for the best possible graphics card at a certain point. Also, this opens the battlefield between single and multi-GPU setups: Could two boards for $199 provide more value than a single $399 or $499 card?

Price is not their only problem. The fundamental design of the chip is where Nvidia is losing. The change that Nvidia needs to make is not in any way going to be cheap. Cutting prices is not going to increase sales enough to compete with ATI this time around.

I am surprised they can go that low already. Assuming yields increase or if they drop the die size increasing profits in the future, they would not need to sell quite as many to make profit, but that would recoup until months down the road. this gives ATI time to do the same and drop their prices some as well. Two can play at theis game (I hope they do, too) Also, are these companies going to be stuck with all first batch ones? I can't see that going over too well.

Either way, good news for us. I would really liike some hard numbers on the profit of the GTS260, GTX280, 4850, 4870 and 4870x2.